Draws on the experience of Bulgaria to study the problems encountered in financing government operations in the transition economies. This report describes Bulgaria's experience in addressing external shocks to its economy and large declines in the ratio of tax revenues to GDP. The book provides broad coverage of the problems many other governments face in transforming their systems of taxation in the transition to a market economy. Chapters discuss taxation and incentives, government and households, indirect taxation, and financing of social expenditures. Attention is also drawn to the implementation of a value-added tax and to policies on fuel taxes. The report facilitates an understanding of the differences between actual and optimal policies as governments seek to establish a framework for resolving their budgetary problems in the transition.